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A Senate report says the Bush administration was aware of U.S. firms' illegal kickbacks to the Iraqi leader in oil-for-food sales but did nothing to stop them.

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By Julian Borger and Jamie Wilson

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May 17, 2005 | The U.S. administration turned a blind eye to extensive sanctions busting in the prewar sale of Iraqi oil, according to a new Senate investigation. A report released Monday night by Democratic staff on the Senate investigations subcommittee presents documentary evidence that the Bush administration was made aware of illegal oil sales and kickbacks paid to the Saddam Hussein regime but did nothing to stop them.

The scale of the shipments involved dwarfs those previously alleged by the Senate subcommittee against U.N. staff and European politicians like British M.P. George Galloway and the former French Interior Minister Charles Pasqua. In fact, the Senate report found that U.S. oil purchases accounted for 52 percent of the kickbacks paid to the regime in return for sales of cheap oil -- more than those of the rest of the world put together.

"The United States was not only aware of Iraqi oil sales which violated U.N. sanctions and provided the bulk of the illicit money Saddam Hussein obtained from circumventing U.N. sanctions," the report says. "On occasion, the United States actually facilitated the illicit oil sales.

The report is likely to ease pressure from conservative Republicans on Kofi Annan to resign from his post as U.N. secretary-general. The new findings are also likely to be raised when Galloway appears before the Senate subcommittee on investigations Tuesday.

The Respect M.P. for Bethnal Green and Bow arrived Monday in Washington and demanded an apology from the Senate for what he called the "schoolboy dossier" passed off as an investigation against him. "It was full of holes, full of falsehoods and full of value judgments that are apparently only shared here in Washington," he said at Washington Dulles Airport. He told Reuters: "I have no expectation of justice ... I come not as the accused but as the accuser. I am [going] to show just how absurd this report is."

Galloway has denied allegations that he profited from Iraqi oil sales and will come face to face with the subcommittee in what promises to be one of the most highly charged pieces of political theater seen in Washington for some time.

Monday's report makes two principal allegations against the Bush administration. First, it found that the U.S. Treasury failed to take action against a Texas oil company, BayOil, that facilitated payment of "at least $37 million in illegal surcharges to the Hussein regime." The surcharges were a violation of the U.N.'s oil-for-food program, by which Iraq was allowed to sell heavily discounted oil to raise money for food and humanitarian supplies. However, Saddam was allowed to choose which companies were given the highly lucrative oil contracts. Between September 2000 and September 2002 (when the practice was stopped) the regime demanded kickbacks of 10 to 30 cents a barrel in return for oil allocations.

In its second main finding, the report said the U.S. military and the State Department gave a tacit green light for shipments of nearly 8 million barrels of oil bought by Jordan, a vital American ally, entirely outside the U.N.-monitored oil-for-food program. Jordan was permitted to buy some oil directly under strict conditions, but these purchases appeared to be under the counter.

The report details a series of efforts by U.N. monitors to obtain information about BayOil's oil shipments in 2001 and 2002, and the lack of help provided by the U.S. Treasury. After repeated requests over eight months from the U.N. and the U.S. State Department, the Treasury's Office of Foreign Assets Control wrote to BayOil in May 2002, requesting a report on its transactions, but did not "request specific information by U.N. or direct Bayoil to answer the U.N.'s questions."

BayOil's owner, David Chalmers, has been charged over the company's activities. His lawyer, Catherine Recker, told the Washington Post: "BayOil and David Chalmers [said] they have done nothing illegal and will vigorously defend these reckless accusations."

The Jordanian oil purchases were shipped in the weeks before the war, out of the Iraqi port of Khor al-Amaya, which was operating without U.N. approval or surveillance. Investigators found correspondence showing that Odin Marine Inc., the U.S. company chartering the seven huge tankers that picked up the oil at Khor al-Amaya, repeatedly sought and received agreement from U.S. military and civilian officials that the ships would not be confiscated by U.S. Navy vessels in the Maritime Interdiction Force (MIF) enforcing the embargo. Odin was reassured by a State Department official that the U.S. "was aware of the shipments and has determined not to take action."

The company's vice president, David Young, told investigators that a U.S. naval officer at MIF told him that he "had no objections" to the shipments. "He said that he was sorry he could not say anything more. I told him I completely understood and did not expect him to say anything more," Young said.

An executive at Odin Maritime confirmed the Senate account of the oil shipments as "correct" but declined to comment further.

It was not clear Monday night whether the Democratic report would be accepted by Republicans on the Senate investigations subcommittee.

The Pentagon declined to comment. The U.S. representative's office at the U.N. referred inquiries to the State Department, which failed to return calls.